Wising Up to the Rising Costs of Aging Populations

Countries around the world are headed for a dramatic demographic transformation caused by falling fertility and rising life expectancy. Particularly in advanced economies, but also in other parts of the world, populations are getting older and this will affect every dimension of life—from the shape of the family to the shape of the world order.

Most problematically, perhaps, it could throw into question the ability of many countries to provide a decent standard of living for the old without imposing a crushing burden on the young.

The latest issue of the IMF’s Finance & Development magazine explores the consequences on society of aging populations. The world’s population will reach 7 billion this year and is projected to exceed 9 billion in 2050. But in the lead article, Ronald Lee and Andrew Mason say that hidden behind these headline numbers are important changes in the age distribution of the population.

In the rich industrial nations as well as some middle- and lower-income countries, such as China, populations will age as the proportion of elderly people rises dramatically.

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Population aging will certainly challenge public and private budgets in many ways, but through a combination of reduced consumption, postponed retirement, increased asset holdings, and greater investment in human capital, it should be possible to meet this challenge without catastrophic consequences.